CONTRIBUTORS
Bill Cass, CFP®, CPWA®
Director of Wealth Planning,
Franklin Templeton
As 529 plans celebrate their 30th anniversary this year, they remain one of the most powerful, yet often misunderstood, tools for education savings. Originally created to help families prepare for college costs, these tax-advantaged accounts have evolved significantly over the past three decades.
Today, 529 plans support a wide range of educational pathways. In addition to college tuition, funds may be used for K–12 expenses, vocational and technical training, registered apprenticeship programs, continuing education and more. As education itself has evolved, so too have the ways families can put 529 savings to work.
A growing opportunity
In 1996, Congress created the 529 plan as part of the Small Business Job Protection Act. The plans were created to encourage education savings with tax advantages. But their real momentum began in 2001, when qualified withdrawals became tax-free, a change that fueled rapid growth, according to the Federal Reserve. Since then, 529 plans have continued to evolve, expanding well beyond their original college-only focus as policymakers broadened how and when these funds can be used.
For more than a decade, lawmakers have steadily enhanced the way 529 funds may be distributed.
2015: Computers, peripheral equipment, software and internet access
2018: K-12 tuition, up to $10,000 annually
2018: ABLE account rollover
2019: Student loan repayment ($10,000 lifetime limit)
2020: Qualified apprenticeship programs and trade schools
2024: Transfer of unused 529 funds to a Roth IRA ($35,000 lifetime limit)
2025: Expansion of K-12 coverage to include other (non-tuition) expenses such as fees or tutoring, increase in annual limit to $20,000
2025: Funds can be used for professional credentialing programs
K-12 education
529 plans can be used to pay for K-12 tuition and other related expenses, up to $20,000 per year per beneficiary. This makes them a valuable tool for families with younger children. It’s important to note that various states have elected not to adopt the federal definition of “qualified educational expense” when it relates to K–12; therefore, 529 owners should be careful to check their state’s position on 529 expenditures and whether the distribution could be subject to state tax.
Vocational programs
The increasing demand for workers trained in vocational or technical trades has resulted in an increase in enrollment in these schools. Students in vocational programs can become cosmetologists, plumbers, dental hygienists, radiologic technologists, medical assistants, construction managers, real estate agents, chefs, HVAC technicians, electricians and more. The National Student Clearinghouse reported enrollment in public two-year colleges with a high vocational program grew 14% in the fall of 2024, representing double-digit growth for the second consecutive year. (Source: National Student Clearinghouse Research Center, Current Term Enrollment Estimates: Fall 2024. As of January 23, 2025.)
Students may use 529 funds for qualified vocational training at trade schools, community colleges and certificate programs. Many programs take less than two years to complete and offer a more affordable alternative to a four-year degree.
Savings in 529 plans can be used to cover qualified expenses in these types of programs, including tuition, fees, housing, meal plans, books, supplies, computer technology and/or equipment. To confirm a 529 withdrawal is considered qualified, use the Federal Student Aid search tool to see if the program has a federal school code and contact the school.
Apprenticeships
Families may use also 529 funds to cover qualified expenses for apprenticeship programs, as students prepare for careers in range of industries such as financial services, education, energy, advanced manufacturing, construction, health care, technology and more. Qualified expenses include fees, books, supplies and equipment. To be eligible, apprenticeships must be registered by the Department of Labor (DOL) Those seeking a qualified program may visit the DOL’s website and use the “Find an Apprenticeship” tool.
Apprenticeships are paid work experiences that combine academic education and hands-on work experience with a mentor. The programs are industry-driven, and students receive nationally recognized credentials.
Turning unused savings into a head start on retirement
One of the most compelling recent changes is the ability to transfer unused 529 funds into a Roth IRA for the beneficiary. In effect, dollars that were originally earmarked for education can be repositioned to jump-start retirement savings, often decades earlier than most young adults would otherwise begin investing for retirement.
Up to $35,000 in 529 funds (over a lifetime) can be contributed to a Roth IRA in the name of the 529 beneficiary. The 529 must be open for at least 15 years, and 529 contributions (and related earnings) within the last five years are not eligible for transfer. Amounts may not exceed annual Roth IRA contribution limits (including other IRA contributions), and the beneficiary must have earned income. However, the income restrictions on making Roth IRA contributions do not apply to these contributions. Normally the ability to make a Roth IRA contribution is phased out once modified adjusted gross income exceeds $153,000 ($242,00 for married couples filing a joint return).
If invested and left untouched, that early Roth funding could grow significantly by retirement—all from money originally set aside for college. What began as an education strategy could become a retirement accelerator.
In a sense, the 529 plan is no longer just a college savings account. It can serve as:
- An education fund
- A plan for other qualified training or graduate school
- Potentially, a launchpad for long-term retirement security
Seek advice
By expanding the uses of 529 plans, policymakers have transformed them from narrowly focused education tools into more adaptable, long-term family planning vehicles.
Families saving for college may consider meeting with a financial professional to set up a thoughtful strategy for education savings that is part of their overall financial plan.
For more information, speak with your financial professional.
*An earnings limitation applies to those who claim Social Security early and continue to work. For 2026, for every $2 earned above $24,480, $1 in benefits will be withheld. During the calendar year you reach your FRA, the threshold increases to $65,160. Above this threshold, for every $3 earned $1 in benefits is withheld.
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